You're listening to Taking Stock with Kathleen Hay and Pim Box on Bloomberg Radio. The Bank of Japan, the European Central Bank, as well as several other European authorities have ventured into uh I guess what you could call unchartered territory of negative interest rates? How did this all happen and what does it mean? Well, that's why we have Marvin Lowe. He is the senior global market strategist for b N Y Melon and he joins us now in the studio. Marvin, thank you very much for being with us.
Thank you for having me. So when someone asks you, how did we get here and what happens next? There's no real playbook for this, is there? No? No, there really isn't. I think that, um, we are in uncharted territory. UM. Up to now, it seems like the world and investors have taken a certain degree of comfort that the central bankers will get us out of this. I think we're
starting to see that fray a little bit. UM. Certainly volatility over the course of the year and the fact that maybe some of these negative yields are not a list sitting. The type of response that the central bankers would have expected is starting to come out into the market, and um, you know, kind of plays into whether or not investors will continue to trust what our central bankers are doing. Um in the worst case scenario, where would
a steady drop in bond yields lead. We now have more than eleven trillion dollars worth of bonds around the world of negative territory. The e c B, of course is buying more, that's focusing on corporates, but it all seems to defeat And of course the Bank of Japan officially went to negative rates in January. There were having wrapping up their two day meeting. They're not expected to buy more bonds yet, but if they don't do it now, they're supposed to do it in July. Where what does
this mean for the markets? Well, you know, you know, clearly clearly it's difficult. Um. By going into this negative yield paradigm, Um, the central bankers are hoping to elicit some sort of response both from the business world as well as from consumers. And in fact, we've seen um that there's a certain part of the world that look at negative yields not necessarily as a positive, as a negative.
So it is ultimately very scary, and I think it um is playing into this commentary that's out there where we're going to have a global slow growth type of environment that seems very difficult to break free of. Well, if you can't break free of it, you've still got to live through it. What are you telling your clients,
your customers, how are you advising them about their money? Well, I mean we all have to reset expectations, right, you know, certainly we've gone through decades of some of the best growth the world has seen, and there are certainly a number of factors that went into that, whether it was technology, whether it was um, a global decline in yields from a very very high perspective. Certainly inflation came down over
the last several decades. If we are in this lower inflation environment with these yields either low or negative, that are difficult to break out of this range, Um, you've got to reset your expectations and plan accordingly, which you know, in turn kind of promotes the concept of greater savings, if you will, which is not what the central bankers want.
They want you to take that money and put it into the economy rather than in the bank certainly plenty of stories, much of an anecdotal of large amounts of safe sales in Japan, the you know, greater amount of ten thousand end notes that are in circulation now than they were in any period over the last couple of decades. So you know, there is that that degree of hoarding and concern out there. So let's take the other side just for fun. Jenny Allen and said, I know it's
a double negative. It's not impossible there could be a rate increase in July at the next meeting, because if the economy perks up and jobs look better and I would add for her, and if the Brexit vote is to remain, you can imagine how global sentiment would shift at least some right, what are the odds of that and how do you how do you position for that? If you're a bond investor or bond trader, well, um, so you know investing in trading certainly potentially could be
two different things. Um. You know, traders are going to take the short term view of that. If they're comfortable one way or another with um a large rebound in the non farm report, if they're comfortable with the remain versus a Brexit. You know, they can certainly take a bed, and it's kind of easy to look at which asset classes have been the most negatively affected with kind of this recent type of of concern in the market. When it comes from an investment perspective, um basis points, it's
not really the biggest thing in the world. Quite frankly, I mean we as strategists, as traders, as animals, we spend a lot of time um wringing our hands over is it going to be July? Is it going to be September? But in the grand scheme of things, going from this kind of basis points to basis points, is not a deal breaker, all right, it's not a deal breaker.
And once your thoughts on the European Central Bank and its corporate bond buying program and what you believe that will, what effect that will have so um, you know, it'll probably um play out the way we've seen the sovereign yield part of the world play out. Um. Those yields are negative. You know, many of the headlines around the
bund getting into negative out to ten years. And like you said, Kathleen, we've got eleven billion, eleven trillion, remember the big figure here eleven trillion in sovereign bonds around the world that are negative, and that in effect has kept rates somewhat captain the US, just because eventually the spread gets so wide that people are going to look at the U s D and at our rates as a good alternative, particularly when um, you're looking at minus one basis points in Germany and ten years if we
if we we, we've seen the e c B get fairly aggressive in their at least what they've announced so far in their corporate bond buying. They are running out of assets, they're still dealing with slow growth. One would presume that they're going to remain aggressive on that front. And you know, once again it promotes the concept of lower yields making making their way out here despite the fact that the Fed is trying to put on a brave face. Okay, you've been in the ball market for
a long time. Does this Raley continue? Does a tenure note in the US break below one for D does it hit it keep going? And for that to happen, what would you have to see? I mean, I think I think the risk is definitely to a lower yield continuing. Um, I think that there was certainly a note of caution that came out of the FLMC today, so we need to take that into effect. It was a note of caution despite the fact that they didn't um change their
economic projections too much, so they're concerned there. And then when we kind of get into the red friendum vote, you know, all bets are all well, uh, I'm betting it's going to be an interesting eight days. Marvel Low, thank you so very much for joining a senior global market strategist at b n Y Melon. In the wake of the Devash statement, the bond rallye may continue. He says, this is taking stock on Bloomberg Radio.